OCBC targets China business after Wing Hang deal
Singaporean lender looks to develop trade finance for mainland firms expanding into the region by building on local market knowledge
Singapore's Oversea-Chinese Banking Corp has sharpened its focus on developing trade finance for mainland Chinese companies expanding into the region after it completed the US$5 billion acquisition of Wing Hang Bank in Hong Kong last year.
The strategy of providing financing tools and local market knowledge makes good sense as Beijing seeks to create new markets for Chinese products by boosting infrastructure investments in the region.
"The 'one-belt, one-road' policy creates a unique opportunity for our bank as Chinese companies plan to increase their market share and infrastructure investment into Southeast Asia," said Na Wu Beng, the chief executive of OCBC Wing Hang Bank.
The economic "belt" will improve transport links to China's neighbours in Central Asia, while the "road" refers to the maritime Silk Road proposed by President Xi Jinping in 2012 to expand trade ties with Southeast Asia.
Na believes Chinese clients would value OCBC Wing Hang's solid understanding of the Asean markets over its financial flexibility. "Combining our local expertise, business network and bespoke solutions to clients, we have a competitive advantage over China's large banks that have huge balance sheets and access to inexpensive funding," he said.
Beijing has announced plans for US$1.2 trillion in outbound investments over the next 10 years, offering domestic companies a chance to increase their market share abroad.
On his visit to Thailand in January, Premier Li Keqiang signed a memorandum of understanding with his Thai counterpart to form a joint venture to build a railway line in the Southeast Asian nation as part of a high-speed network that would reduce travel time between Kunming and Singapore to under 10 hours.
China is expected to contribute more than 20 per cent of OCBC's overall profit before tax in the two years to 2017, up from 12 per cent currently. Singapore contributed about 60 per cent of the group's operating earnings and Malaysia was the second-largest contributor with more than 20 per cent, according to its annual report last year.
Na said the bank's decision to open a corporate office in Shanghai in 2013 reflected its commitment to the growing trade and investment between China and Southeast Asia.
"Apart from Shanghai, the Pearl River Delta including Hong Kong and Macau is our bread and butter, offering higher returns and risks simultaneously," he said, referring to the non-performing loan ratio in its China operation, which was about 0.3 per cent last year, compared with 0.6 per cent at the group level.
Most loans in southern China were related to property development, Na said, since the manufacturing business had come under mounting pressure from the rising yuan and labour costs.
Bilateral trade between China and the Association of Southeast Nations reached US$444 billion in 2013, representing a fivefold jump from 2003, according to China's Ministry of Commerce.
OCBC is the second Singaporean bank to gain a foothold in Hong Kong following DBS, Southeast Asia's largest lender, which paid US$5.4 billion for Dao Heng Bank in 2001. However, DBS booked at least S$2.1 billion in write-downs after the purchase.